The SEC today unanimously approved proposed rules mandating new liquidity-risk management practices for open-end funds. The proposal reflects continuing pressure from global and U.S. regulators to address open-end fund risk given growing holdings of illiquid investments used to boost yield and resulting fire-sale risk. Under the proposal, fund boards would be required to approve liquidity classification and the three-day liquidity minimum. Funds could utilize swing pricing to impose costs on shareholders if a fund-determined threshold is breached, and the proposal would require several new disclosures, many in relation to the above requirements. Commissioner Stein pressed for tougher rules, questioning whether some funds should even be considered mutual funds. Commissioners Gallagher and Piwowar both expressed concern about the three-day measuring stick for fund liquidity, and also argued that the swing pricing rule was not sufficiently flexible. This report analyzes today’s action; FedFin will shortly provide clients with an in-depth report on the new proposal.
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